Thursday, June 20, 2013

FedEx reports growth in quarterly revenue thanks once again to parcel business

Another lackluster earnings report but signs of improvements seem to be appearing. Once again, the Ground division led revenue growth for FedEx. For the quarter ending May 31, total revenue increased 3.6% to 11.4bn. For its 2013 fiscal year, overall revenue increased 3.7% to $44.3bn.

The Ground division reported an impressive 12% increase in revenue to almost $3bn with operating income increasing 13% to $2.78bn and operating margin expanding to 20.1%. Average daily volume increased 10% while SmartPost noted a 25% increase in average daily volume growth.  The company attributed the increases to the growth of e-commerce, again, and it also appeared to have achieved market share gains during the quarter.

For the Express division, revenue increased 3% to $6.98bn. The increase was attributed to recent acquisitions and the growth of FedEx Trade Networks. Average US domestic volumes increased 2% while FedEx International Economy volume grew 11% and FedEx International Priority volume decreased 2% during the quarter.

And finally, its Freight division noted a 1% decline in quarterly revenue while operating income and the operating margin remained unchanged.  An interesting note is that average daily LTL shipments declined 3% partly because of “challenges” some customers encountered when migrating to the FedEx enterprise automation platform.

Overall it appears FedEx is making strides in right-sizing its operations. During the quarter it retired ten aircraft and announced it would remove additional capacity along the US – Asia tradelane. This makes at least the second time in fiscal 2013 that the company has removed additional capacity along this tradelane. Not only are customers choosing less expensive options to ship goods, perhaps it is also indicative of an overall global supply chain shifting away from mature regions.

Although no financial information is available for FedEx Trade Networks, it appears it is doing well as it continues to open offices worldwide.

CEO Frederick W. Smith observed that although FedEx Ground posted a strong fiscal year and FedEx Freight margins continued to improve, “these positive developments did not fully offset tepid economic growth and customer preference for less costly international shipping services.”

The outlook remains cautious and the company’s progress towards improvements will likely be a long process as a result. According to Alan B. Graf, Jr., FedEx Corp. executive vice president and chief financial officer, “We remain focused on improving margins and returns in all of our businesses. The pace of that improvement is expected to be moderate in fiscal 2014 and then accelerate in fiscal 2015. Our profit improvement program is progressing, but we continue to see the effects of customers selecting lower-rate international services.”